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The Research Director of Clean Vehicle Program of the Union of Concerned Scientist, David Friedman said that Honda is a class of its own when it comes to producing clean cars and trucks. Honda was acknowledged for its environmental commitment. In the 1970s and 1980s, Honda constantly improved the fuel efficiency of its cars. It became the first company to sell hybrid cars in North America and also the first to get its fuel cell cars certified by the US government. In June 1992, Honda created and announced its Environment Statement which states that the company, as a responsible member of the society whose task lies in the preservation of the global environment, will make every effort to contribute to human health and the preservation of the global environment in each phase of its corporate activity. They then called this statement as Environmentology and even trademarked the term. Honda and its subsidiaries' efforts to lessen their impact on the environment were recognized. Honda received several awards from reputed government and environmental organizations in Japan and other countries. Honda was ranked number one in each issue of UCS's report, Automaker Rankings: The Performance of Car Companies. Honda's hybrid car, the Insight, garnered several impressive awards over the years including the "Excellence in Environment Engineering" sponsored by the US Sierra Club, and the "International Engine of the Year" for 2000 sponsored by Engine International, a UK engine magazine. Although Honda was making efforts to introduce more fuel-efficient models, there were reports that some customers of Honda hybrid models were not too happy with their vehicles. Even if Honda seemed to be ahead in the race to commercialize hydrogen-powered vehicles, its competitors too were busy developing their very own fuel cell models. Honda was behind Toyota in most marketing survey that ranked automakers on public perceptions about their environmental sensibility.
Background of the Case
Honda was among the first automobile companies to take up environment conservation activities. Honda categorized its environmental initiatives under seven domains namely, product development, purchasing, production, transportation, sales, disposal and recycling, and administration. Honda's product development domain pertained to developing products such as automobiles, motorcycles, and power products which were efficient and environmentally clean. It concentrated on four aspects specifically reducing air pollutants, reducing CO2 emissions, reducing noise, and developing products that ran on alternate sources. Honda began serious R&D efforts to develop vehicles that ran on alternate energy so that the environmental damage caused by burning gasoline and diesel could be reduced. It also had a full-fledged research program for fuel-cell powered cars. For purchasing, Honda issued what is called as the "Green Purchasing Guidelines" in April 1999 to promote the procurement of materials and parts which have minimal environmental impact. While for production, in order for Honda to minimize the environmental impact of its manufacturing operations, it implemented the Green Factory initiative, which was practiced in its factories across the world. The Green factory initiative had an ambitious target of zero emissions. On the other hand, in the transportation domain Honda introduced the concept of "Green Logistics". In this initiative, transportation companies were encouraged to acquire the ISO 14001 to improve transporting efficiency, and to ensure cleaner exhaust gases from their transport systems. In the sales domain, Honda was extending the Environmental Management System (EMS) involved in training employees, staff and operators to its automobile, motorcycle and power product dealers. Furthermore, for disposal and recycling domain, Honda installed the 3R (reduce, reuse and recycle) evaluation system which assessed and improved the recyclability of new models on an ongoing basis. In addition, for its last domain, administration, Honda implemented the Green Office initiative. Honda employees working in its headquarters were required to monitor the environmental impact of their activities and take steps to reduce them to the extent possible. Other Honda offices that were distributed across the world were also encouraged to acquire the ISO 14001 certification.
Analysis and Conclusion
Many marketers use the tag of being environmentally friendly to entice customers. Do you think this is an effective strategy? If yes, does the tag appeal equally in all product categories?
Today, because of environmental problems like global warming, climate change and green house effects, consumers had come to realize the importance of preserving and conserving our environment. Consumers nowadays are becoming more conscious and are starting to choose products that help contribute to the welfare of our environment. Conversely, companies at present are also trying to offer products that are environmentally friendly. I think this is an effective strategy if the company will really put these tags or words into actions. A very good strategy will have no value if they are not properly implemented. Moreover, for this strategy to be effective, consumers should also be informed of the different value creating activities of the company so that they will patronize the company's products. This strategy is applicable to both consumer products and industrial products but I think this will not appeal equally in all product categories. For me, consumer products will have the most appeal compared to industrial products since industrial products are not consumed directly by consumers and are subject to further processing to arrive at the final product.
Honda spends more per vehicle on R&D and capital expenses than any other major automobile manufacturer. Discuss this in light of Honda's profitability, customer perception about its environment sensibility, and competitive position.
Spending more per vehicle on R&D and capital expenses will mean that there will be an increase in Honda's overall expenses. An increase in expenses will usually result to less profit but this equation will be proven wrong if the sales of Honda's products will increase and offset the added expenses. Adding more on R&D and capital expenses will show that Honda is really putting an effort in making our environment better. This will only be perceived as such by the consumers if they are aware of Honda's initiatives and undertakings. And finally, Honda can use this as way of differentiating their products from their competitors thus gaining a competitive advantage.
Is Honda taking a risk when it assigns huge budgets for fuel cell research? Is the top management justified in spending company resources on environmental projects, even when they do not seem to have a commensurate beneficial impact on public perceptions about the company? Are Honda's environmental initiatives adding value to its shareholders?
For me, every endeavor involves risk and I think that Honda is taking a risk when it assigns huge budgets for fuel cell research. This step is quite risky since it involved large amount of capital and the returns of this undertaking are not certain. The top management's efforts to reduce Honda's products' impact on the environment is reasonable, the problem now lies on how the company marketed these environmental projects to its consumers so as to have a favorable position regarding public perceptions about the company. Some of Honda's environmental initiatives are not adding value to its shareholders because its Environmentology campaign is not successfully working as planned. And also Honda was pressured to maintain their project that is why some of its automobile models like the Insight were discontinued and phased out.
For Honda to be back on track and be ahead of its competitors, the company should spend equally on both R&D and Marketing activities. The company should employ marketers that will help their engineers market the company's environmental initiatives to its customers, in that way, consumers' perceptions about the company will improve, calling for more sales and adding more value to the company and shareholders as well.